Beating Elon Musk with the “poison” technique

Acquisitions and mergers are normal phenomena in business, but they are complex events to deal with when the interests of the buyer and the management of the target company are not properly aligned, as in the case of Musk and the social network Twitter.

Several voices have expressed their thoughts on the matter (including former CEO Jack Dorsey), and several articles have outlined a number of dangers or possible ulterior motives behind the South African billionaire movement (which is not free from judicial oversight). However, one of the most interesting developments was the way Twitter decided to defend itself against the attack with a strategy called a “poison pill”.

In brief:

  • The aim is to make the target company less attractive to the buyer, to allow existing shareholders to buy more shares at a lower price, to reduce the buyer’s share (% owned by the company) and to make it more difficult to acquire a majority stake. capital.
  • Author and name of the strategy it is due to the New York-based law firm of Wachtell, Lipton, Rosen, and Katz, which in the 1980s was inspired by the espionage and cyanide pills that many spies carried with them in the event that an enemy was caught and used to go undetected. your secret.

In theory, there are two ways to put this strategy into practice (sorry “English”): turn in it is turn. In the first, the management of the target company says that all shareholders can buy new shares at a discount, except “hostile buyer”from the moment the latter owns a certain percentage of the company.

  • Assuming that the value of the company remains unchanged, this will lead to a devaluation of the buyer’s stake due to the higher number of shares outstanding.

In another, if a hostile takeover succeeds, the shareholders of the acquired company to acquire the right to purchase shares in the acquiring company a significant discount, which could lead the company to consider resuming the acquisition twice if it considers it to be detrimental to its own valuation.

In the case of Twitter…

We found a typical case reversible poison pillconsidering that Twitter is worth about $ 35 billion and that Elon Musk owns about 9.2% of the social network.

  • The “Board of Directors” unanimously voted for a plan that provided that if a person or group becomes to own more than 15% of the company, other shareholders could purchase new shares at a discount.
  • Thus, if Musk continues to buy shares on Twitter until he reaches this level, the remaining shareholders will have the opportunity to buy more shares, reducing the billionaire’s stake and forcing him to redouble his efforts to buy the platform.
  • This plan is valid until April 14, 2023 to prevent a known claim from Tesla’s CEO.

Other examples:

  • THE Netflix in 2012, he used a similar tactic to “escape” billionaire Carl Icahn when he owned 10% of the company.
  • In 2018, Papa John’s pizza chain used the same strategy to prevent its former CEO John Schnatter (removed from the company) from regaining control of the company.

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